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Estate of Robert W. Best, Deceased, John Fleming, Executor, Petitioner v. Commissioner of Internal Revenue, RespondentEstate of Best v. CommissionerDocket No. 267-76January 26, 1981, Filed
United States Tax Court *185
Decision will be entered for the respondent in accordance with the revised amounts of the respondent's determination of deficiencies and additions to tax .In the course of a criminal investigation of a lottery operation, the FBI obtained judicial authorization to intercept communications received by various participants in the lottery, including Best. The investigation resulted in Best's pleas of guilty to criminal charges relating to the conduct of an illegal gambling business. In the criminal proceedings involving the lottery operators, some testimony was received as to the contents of the intercepted communications. Both prior to and subsequent to the criminal proceedings, revenue agents prepared computations of Best's wagering tax liability, utilizing evidence derived from the intercepted communications. Petitioner sued for a refund of the resulting wagering excise taxes paid and moved to suppress the evidence obtained through the lawful FBI wiretaps, contending that the disclosure of such evidence to revenue agents violated the Federal wiretap statute. This motion was denied in
Fleming v. United States , an unreported case (S.D. Ga. 1975, 36 AFTR 2d 75-5737, 75-2 USTC par. 16,200),*186 affd. per curiam547 F.2d 872">547 F.2d 872 (5th Cir.), cert. denied434 U.S. 831">434 U.S. 831 (1977). Following Best's indictment and guilty plea, another revenue agent obtained the wiretap information from the FBI and prepared a computation of Best's income tax liability.Held :1. As a result of the decision in
Fleming v. United States , petitioner is estopped from challenging the legality of the FBI's disclosure of the wiretap information to revenue agents investigating Best's income tax liability.2. Even if collateral estoppel is not applicable herein,
18 U.S.C. sec. 2515 (1976) does not require the exclusion of the wiretap evidence in proceedings related to Best's income tax liability, since any privacy interest the decedent had in such information was eliminated by the disclosure of its substance in the criminal proceedings involving the participants in the lottery.Fleming v. United States , followed.William J. Cooney and , for the petitioner.Stephen E. Silver andKimley R. Johnson , for the respondent.Joseph T. Chalhoub Raum,Judge .RAUM*123 OPINION
The Commissioner determined the following deficiencies and additions to tax in respect of the decedent's 1970, 1971, and 1972 income taxes:
Additions to tax Year Deficiency sec. 6653(b), I.R.C. 1954 1970 $ 227,915.80 $ 113,957.90 1971 195,577.66 97,788.83 1972 150,646.69 75,323.35 The deficiencies were primarily the result of the Commissioner's determination that the decedent had unreported net wagering income in each of the taxable years involved, and the Commissioner also determined that all or part of the resulting underpayments in tax were due to fraud. By stipulation of the parties, the deficiencies and additions to tax have been reduced to the following amounts: *124
Additions to tax Year Deficiency sec. 6653(b), I.R.C. 1954 1970 $ 70,172.06 $ 35,086.03 1971 61,887.14 30,943.57 1972 56,829.94 28,414.97 The case was submitted solely upon the basis of a stipulation*189 of facts.
Best received distributions of "income" from the partnership during 1970, 1971, and 1972 in the amounts of $ 100,451.67, $ 99,616.67, and $ 79,939, respectively, which amounts were not reported on his Federal income tax returns. The parties have stipulated that these amounts of*191 "taxable income" *125 from Best's returns, fraudulently, and with intent to evade and defeat taxes.
During 1972, Best was the subject of an investigation by the Federal Bureau of Investigation (FBI) concerning wagering activities in the Augusta, Ga., area. Pursuant to proper authorization, the U.S. District Court for*192 the Southern District of Georgia issued orders permitting the wiretap of certain telephone numbers used in the operation of a gambling business. Partly as a result of information obtained from various telephone conversations during September 1972 and October 1972, arrest warrants were issued from the U.S. District Court, Southern District of Georgia, on November 10, 1972. The execution of these warrants on November 10, 1972, resulted in seizure by the FBI of certain physical evidence, including adding machine tapes, calendar pads, notebooks, and other documents used in the numbers operation. The legality of the interception of the telephone communications *193 other persons were subsequently indicted on April 30, 1973, and charged with violations of
18 U.S.C. secs. 1955 ,371 , and372 (1976) . On September 27, 1973, Best pleaded guilty to two counts of an indictment against him, and others in the numbers operation likewise entered pleas of guilty. The counts of the indictment to which Best pleaded guilty charged him with the offenses of "Conducting, financing, managing, supervising, directing, or owning all or part of an illegal gambling business" and "Conspiracy to violate the gambling laws of the United States" during a period commencing September 7, 1971. Pursuant to his guilty plea, the District Court adjudged Best guilty of both counts. Best was sentenced to 4 years of imprisonment, which sentence was suspended, placed on probation for 5 years, and fined a total of $ 30,000.On September 7, 1977, petitioner filed two motions. The first motion, entitled "Motion to Determine Admissibility of Evidence," requested a ruling that the disclosure of the wiretap information to Revenue Agent Drake was unauthorized and prohibited by the wiretap provisions of the Omnibus Crime Control and Safe Streets Act of 1968,
18 U.S.C. secs. 2510-2520 (1976) , and that "the IRS cannot use such evidence as a factual basis to support the determination in the statutory notice of deficiency." The second motion, entitled "Motion to Determine Presumptive Correctness of Statutory Notice of Deficiency," requested that the Court rule that because the sole basis for the notice of deficiency was purportedly the wiretap information, no presumption of correctness attaches to the notice of deficiency and that in order to sustain the deficiency, the Commissioner has the burden of producing and going forward *202 with evidence obtained independently from the wiretap.As set forth in the stipulation of facts, petitioner's offer of proof was substantially as follows:
"Wiretap information and FBI evidence indicates the daily take at $ 6,600.00 a day."
Revenue Agent Drake had no contact whatsoever with any IRS Special Agents.
Collateral estoppel . -- As the Supreme Court recently stated in 440 U.S. 147">440 U.S. 147, 153 (1979):Montana v. United States ,A fundamental precept of common-law adjudication, embodied in the related doctrines of collateral estoppel and res judicata, is that a "right, question or fact distinctly put in issue and directly determined by a court of competent jurisdiction . . . cannot be disputed in a subsequent suit between the same parties*210 or their privies . . . ."
, 48-49 (1897). * * *Southern Pacific R. Co. v. United States , 168 U.S. 1">168 U.S. 1
The doctrines are applied because "To preclude parties from contesting matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility of inconsistent decisions." .Montana v. United States , 440 U.S. at 153-154Res judicata serves as a bar to repetitious litigation which involves the same cause of action determined on the merits in the first proceeding. See
, 597 (1948);Commissioner v. Sunnen , 333 U.S. 591">333 U.S. 591 , 108-109 (5th Cir. 1975);Stevenson v. International Paper Co ., 516 F.2d 103">516 F.2d 103 , 1381 (1954), affd.Fairmont Aluminum Co. v. Commissioner , 22 T.C. 1377">22 T.C. 1377222 F.2d 622">222 F.2d 622 (4th Cir.), cert. denied350 U.S. 838">350 U.S. 838 (1955). Although the tax years involved herein also appear to have been involved inFleming *211 , the latter was a suit for refund of wagering excise taxes, and petitioner's income tax liability was not in issue. Since these causes of action are not the same, res judicata is not applicable. However, the application of collateral estoppel is not so narrowly limited by the cause of action involved in the prior litigation. Instead, "Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits * * * involving a party to the prior litigation," even though the subsequent suits may be based on different causes of action. ; seeMontana v. United *134 , 440 U.S. at 153 , 94 (1980);Allen v. McCurry , 449 U.S. 90">449 U.S. 90 , 326 n. 5 (1979);Parklane Hosiery Co. v. Shore , 439 U.S. 322">439 U.S. 322 ;Commissioner v. Sunnen , 333 U.S. at 598 , 353 (1876).Cromwell v. County of Sac , 94 U.S. 351">94 U.S. 351In order to determine whether collateral estoppel should be applied in a particular case, the Supreme Court has stated in
,*212 that we must address three questions:Montana v. United States , 440 U.S. at 155
first, whether the issues presented by this litigation are in substance the same as those resolved [in the prior litigation] * * *; second, whether controlling facts or legal principles have changed significantly since the [prior] * * * judgment; and finally, whether other special circumstances warrant an exception to the normal rules of preclusion.
See also , 253 (1980).Union Carbide Corp. v. Commissioner , 75 T.C. 220">75 T.C. 220We do not find in this case any "special circumstances" which would preclude the application of collateral estoppel. See
and n. 11. Furthermore, petitioner has not directed our attention to any cases which would suggest a change in the controlling law since the decision of the Fifth Circuit inMontana v. United States , 440 U.S. at 162-164Fleming . Indeed, in , 526 (5th Cir. 1979), the court reaffirmed its holding inGriffin v. United States , 588 F.2d 521">588 F.2d 521Fleming . Thus, the only question we must resolve is whether the issues involved are sufficiently similar to those resolved inFleming to call for the application of collateral*213 estoppel. In making this determination, we will apply the standards enunciated by the Fifth Circuit:
The party asserting the estoppel must show that the issue to be concluded is identical to an issue decided in the prior litigation, that it was actually litigated, and the decision on the issue must have been necessary to the prior judgment. * * * , 1067 (5th Cir. 1979); seeIn re Merrill , 594 F.2d 1064">594 F.2d 1064 , 458-459 (5th Cir.), cert. deniedJames Talcott, Inc. v. Allahabad Bank, Ltd ., 444 F.2d 451">444 F.2d 451404 U.S. 940">404 U.S. 940 (1971). , was an action for the refund of wagering excise taxes assessed against Best. In that proceeding, the Government introduced into evidence the wire communications intercepted in the wiretaps of the numbers operation. Petitioner sought to suppress this evidence, and the District Court denied the motion on two grounds. First, since the wiretaps had been lawfully authorized, the court held that *135 suppression was not a proper remedy, becauseFleming v. United States, supra 18 U.S.C. sec. 2518(10) *214 only for suppression of evidence obtained from unlawful wiretaps, and did not provide a remedy for unauthorized disclosure of wiretap evidence; the court concluded that the only remedy for unauthorized disclosure was a civil action under18 U.S.C. sec. 2520 (1976) , which provides for the recovery of damages and attorney's fees in suits against persons who unlawfully intercept, disclose, or use wire or oral communications. Furthermore, the District judge who had presided over the trials and guilty pleas of Best and other participants in the numbers operation held that the wiretap evidence became a matter of public record when Best and his codefendants were tried or entered guilty pleas, and that any improper disclosure of the wiretap evidence was rendered harmless because the evidence was freely available.Fleming v. United States , an unreported case ( S.D. Ga. 1975, 36 AFTR 2d at 75-5738, 75-2 USTC at 88,975).The court cited three provisions of the statute as support for its conclusion that the evidence need not be excluded. First, the court stated that
18 U.S.C. sec. 2515 , *218Section 2517(2) *219 permits the investigative officers conducting an authorized *137 *217 interception to use the information so obtained to the extent appropriate for the performance of their duties; the court suggested that communication of relevant information to the IRS could be a proper responsibility of the FBI officials.547 F.2d at 874 . Also, the court further observed thatsection 2517(3) 18 U.S.C. sec. 2517(5) ;547 F.2d at 875 and nn. 2 & 3.Although we do not interpret the opinion of the Court of *138 Appeals in
Fleming as broadly determining that wiretap evidence lawfully obtained is always admissible in subsequent civil tax proceedings, Fleming because the privacy interests*220 presented herein are no greater than those presented to the court inFleming . We are able to discern no significant difference between the facts and issues litigated inFleming and the facts and issues involved herein. In both cases, following Best's indictment and subsequent guilty plea, *222 Based on this evidence, the revenue agents prepared computations of Best's tax liability. *223 In the wagering tax case, this was followed by *139 IRS assessment of the wagering taxes, while herein, the result was the Commissioner's issuance of a notice of deficiency. However, in both cases, the issues requiring judicial determination were whether the FBI's disclosure of the wiretap information to revenue agents was unlawful, and if so, whether this required that the wiretap evidence be excluded in proceedings for the determination of Best's tax liability. Fleming, culminating with the Supreme Court's denial of Fleming's petition for certiorari, these questions were resolved adversely to petitioner, and*221 we find that petitioner is estopped from further litigating this matter.To be sure, petitioner contends that there are critical differences between the facts in
Fleming and the instant case. However, we do not find these distinctions convincing. Petitioner contends that the Fifth Circuit concluded that "there was in fact a full disclosure of the particulars of the intercepted" communications, relying on a stipulation of the parties inFleming , which is set out below. Fleming and the stipulation of the parties herein.Finally, even if the stipulation of fact or other evidence in the present case differs from what was before the court in the earlier case, that circumstance would not preclude the application of the principle of collateral estoppel. The critical question is whether the issue was in fact before the court in the prior case and whether there was an adjudication of that issue. Once it is established that there has in fact been such an adjudication, it is no longer open to one of the parties to seek a different result in a later case based upon further or different evidence.
(1954), affd.Fairmont Aluminum Co. v. Commissioner , 22 T.C. 1377">22 T.C. 1377222 F.2d 622">222 F.2d 622 (4th Cir. 1955), cert. denied 350 U.S. 838">350 U.S. 838 , rehearing denied350 U.S. 905">350 U.S. 905 , leave to file second petition for rehearing denied352 U.S. 913">352 U.S. 913 (1956). And in the present controversy, there has in*227 fact been an adjudication by the Fifth Circuit that there had been sufficient valid public disclosure of the wiretap evidence in the criminal case to justify use of that evidence in the determination of civil tax liability of Mr. Best. That adjudication furnishes a solid basis for the application of collateral estoppel in the case before us.Wiretap Statute . -- Even if we did not apply collateral estoppel, we would still follow the Fifth Circuit's construction of the wiretap statute and reach the same result because we find that Best retained no significant privacy interest in the intercepted communications after the criminal proceedings, at least to the extent that these communications related to his income tax liability. As set forth , in testifying at the time of Best's guilty plea, FBI Agent Collins informed the court that the lottery operation was "bringing in" an average of $ 5,000 to $ 6,000 per day, and that Best was supervising its operations. Furthermore, in his testimony at the trial of another defendant, Agent Collins explained the numbers operation in complete detail. Agent Collins testified that the numbers operation had been active*228 for 30 years; explained the procedure for computing the daily number from the closing volume on the New York and American Stock Exchanges; specified the various salaries or commissions received by the respective participants in the operation, such as the "comptroller" ($ 150 per week), the telephone relay operators ($ 100 per week), the writers (25 percent of gross wagers), and the subwriters (10 percent of gross *142 wagers); stated that the owners of the operation netted 25 percent of the total wagers; and identified Best as one of the "Kingpins" of the operation. Best's central role in the numbers operation and the approximate profits he received therefrom were fully disclosed in open court in the criminal proceedings. These disclosures provided an ample and independent basis for the issuing of a notice of deficiency. We therefore find that Best could not have retained any significant privacy interest in the contents of the intercepted communications, at least to the extent that such communications were used by Agent Drake for the purpose of ascertaining his liability for income taxes. We accordingly follow the decision of the Fifth Circuit insupra at pages 125-126Fleming to the extent*229 that it determined that18 U.S.C. sec. 2515 (1976) does not bar use of lawfully obtained wiretap evidence in such circumstances.Decision will be entered for the respondent in accordance with the revised amounts of the respondent's determination of deficiencies and additions to tax .Footnotes
1. The stipulation of the parties, filed Feb. 6, 1980, contained amounts slightly different from those stated above. By a motion filed May 1, 1980, the Government moved to correct errors in the amounts stated in the stipulation. Although not signed by petitioner's counsel, the motion stated that petitioner's counsel had no objection to the motion. The adjustments made by the motion appear to be in the aggregate favorable to petitioner. The motion was granted on May 5, 1980, and the revised amounts set forth above are in accordance with the amounts stated in the motion.↩
2. The above statements are precisely in agreement with the stipulation filed by the parties. It appears that the above amounts in fact represent Best's one-third distributive share of the partnership income for each year, less the $ 10,000 of "miscellaneous income" Best reported for each of the years involved. See secs. 702, 704,
I.R.C. 1954↩ . In light of the parties' stipulation with respect to the amounts of any deficiencies and additions to tax, and the fact that any disparity between Best's one-third distributive share of the partnership net income and amounts stated to be distributions of "income" is favorable to petitioner, no further consideration of this point is required.3. The matter appears to have been previously resolved in connection with the criminal prosecution involving Best and other participants in the numbers operation. See
, 15-19↩ (S.D. Ga. 1973).United States v. Best , 363 F. Supp. 11">363 F. Supp. 114. Pub. L. 90-351, 82 Stat. 197.↩
5.
18 U.S.C. sec. 2518(10)(a) (1976) , provides as follows:Sec. 2518 . Procedure for interception of wire or oral communications(10)(a) Any aggrieved person in any trial, hearing, or proceeding in or before any court, department, officer, agency, regulatory body, or other authority of the United States, a State, or a political subdivision thereof, may move to suppress the contents of any intercepted wire or oral communication, or evidence derived therefrom, on the grounds that --
(i) the communication was unlawfully intercepted;
(ii) the order of authorization or approval under which it was intercepted is insufficient on its face; or
(iii) the interception was not made in conformity with the order of authorization or approval.
Such motion shall be made before the trial, hearing, or proceeding unless there was no opportunity to make such motion or the person was not aware of the grounds of the motion. If the motion is granted, the contents of the intercepted wire or oral communication, or evidence derived therefrom, shall be treated as having been obtained in violation of this chapter. * * *↩
6.
18 U.S.C. sec. 2515 (1976) , provides:Sec. 2515 . Prohibition of use as evidence of intercepted wire or oral communicationsWhenever any wire or oral communication has been intercepted, no part of the contents of such communication and no evidence derived therefrom may be received in evidence in any trial, hearing, or other proceeding in or before any court, grand jury, department, officer, agency, regulatory body, legislative committee, or other authority of the United States, a State, or a political subdivision thereof if the disclosure of that information would be in violation of this chapter.↩
7. Accord,
, 324 (7th Cir.), cert. deniedUnited States v. Horton , 601 F.2d 319">601 F.2d 319444 U.S. 937">444 U.S. 937 (1979); , 199 (9th Cir. 1976);In re Gordon , 534 F.2d 197">534 F.2d 197 , 855 (2d Cir. 1976); cf.United States v. Vento , 533 F.2d 838">533 F.2d 838 , 524-528 (1974);United States v. Giordano , 416 U.S. 505">416 U.S. 505 , 325 (8th Cir.), cert. deniedUnited States v. Phillips , 540 F.2d 319">540 F.2d 319429 U.S. 1000">429 U.S. 1000 (1976), further appeal564 F.2d 32">564 F.2d 32 (8th Cir. 1977), cert. denied435 U.S. 974">435 U.S. 974 (1978); see also , 1001 (3d Cir. 1973), affd. on other groundsUnited States v. Iannelli , 477 F.2d 999">477 F.2d 999420 U.S. 770">420 U.S. 770↩ (1975).8.
18 U.S.C. sec. 2517(2) ,(3) ,(5) (1976) , provides:Sec. 2517 . Authorization for disclosure and use of intercepted wire or oral communications(2) Any investigative or law enforcement officer who, by any means authorized by this chapter, has obtained knowledge of the contents of any wire or oral communication or evidence derived therefrom may use such contents to the extent such use is appropriate to the proper performance of his official duties.
(3) Any person who has received, by any means authorized by this chapter, any information concerning a wire or oral communication, or evidence derived therefrom intercepted in accordance with the provisions of this chapter may disclose the contents of that communication or such derivative evidence while giving testimony under oath or affirmation in any proceeding held under the authority of the United States or of any State or political subdivision thereof.
* * * *
(5) When an investigative or law enforcement officer, while engaged in intercepting wire or oral communications in the manner authorized herein, intercepts wire or oral communications relating to offenses other than those specified in the order of authorization or approval, the contents thereof, and evidence derived therefrom, may be disclosed or used as provided in subsections (1) and (2) of this section. Such contents and any evidence derived therefrom may be used under subsection (3) of this section when authorized or approved by a judge of competent jurisdiction where such judge finds on subsequent application that the contents were otherwise intercepted in accordance with the provisions of this chapter. Such application shall be made as soon as practicable.↩
9. See note 8
supra↩ .10. See note 8
supra↩ .11. In
, 408 (5th Cir. 1977), the court in dictum citedChapman v. United States , 559 F.2d 402">559 F.2d 402Fleming for the proposition that "the statutes governing wiretaps expressly allow evidence [legitimately] * * * gathered in a criminal proceeding to be used in a civil tax assessment suit." However, in , 526 (5th Cir. 1979), a case involving other participants in the numbers operation, the court emphasized thatGriffin v. United States , 588 F.2d 521">588 F.2d 521Fleming's statements as to the proper scope of U.S.C.secs. 2515 and2517(2) were made in the factual context of very weak privacy interests. Even ifFleming does in fact stand for the broader proposition cited inChapman↩ , this would certainly not diminish its collateral estoppel effect for purposes of this case.12. In
Fleming , some disclosures of wiretap information in fact preceded Best's indictment and plea of guilty, arguably presenting stronger privacy interests than those involved herein. See n. 6. As heretofore set forth, the assessments for January 1969 through November 1972 were based on the information given to IRS agents before Best's indictment. The other assessments inGriffin v. United States , 521">588 F.2d at 525Fleming↩ tracked the factual pattern of the present case; the assessments for January 1967 through December 1968 were based on information forwarded to revenue agents in September 1974, after Best's indictment and sentencing. Agent Drake, who investigated Best's income tax liability, received the wiretap evidence around February of 1974, several months after Best's indictment and guilty plea.13. There are, of course, differences in the computations of tax liability required by the wagering excise tax and the income tax. The wagering excise tax is imposed on "wagers,"
sec. 4401, I.R.C. 1954 , which includes "any wager placed in a lottery conducted for profit."Sec. 4421(1)(C), I.R.C. 1954 . The wagering excise tax is thus imposed on gross wagers, while the income tax requires consideration of deductions as well because the tax is imposed on the taxpayer's "taxable income," which is determined after various trade or business deductions are taken into account. Seesecs. 1 ,61- 63 ,I.R.C. 1954 . However, to the extent that the revenue agent involved in the computation of Best's income tax liability was required to delve more deeply into the wiretap evidence than were the revenue agents who prepared determinations of Best's wagering excise tax liability, we do not find this to be a significant distinction from the facts presented inFleming . The critical unknown in each case which was obtained from the wiretap evidence was Best's unreported gross wagering income, which was at once the basis for computing the wagering excise tax and the starting point in determining Best's taxable income. If the revenue agent involved in computing Best's income tax liability made more intrusive examinations of the wiretap evidence than did the wagering excise tax agents, petitioner suffered no injury, since the Government was not required to allow the petitioner the benefit of any unclaimed deductions in determining Best's unreported income. See , 1177-1178↩ (1980).Conforte v. Commissioner , 74 T.C. 1160">74 T.C. 116014. See note 13
supra↩ .15. As set forth in petitioner's brief, one of the stipulations filed in
Fleming reads as follows:"8. On September 27, 1973, Robert W. Best pleaded guilty to two counts of the indictment against him, and others involved in the numbers operation likewise entered pleas of guilty. At the time of the taking of the pleas and in connection with the imposition of sentence, testimony was received in open court concerning both the physical evidence which had been seized and the contents of the intercepted telephone conversations,
and the matters were thus disclosed . [Emphasis added.]"Par. 16 of the stipulation filed herein provides as follows:
"On September 27, 1973, Best pleaded guilty to two counts of an indictment against him, and others involved in the numbers operation likewise entered pleas of guilty. At the time of the pleas and in connection with imposition of sentence, some testimony was received in open Court concerning both the physical evidence which had been seized and the contents of the intercepted telephone conversations, and those matters were then disclosed."↩
Document Info
Docket Number: Docket No. 267-76
Citation Numbers: 1981 U.S. Tax Ct. LEXIS 185, 76 T.C. 122
Judges: Raum
Filed Date: 1/26/1981
Precedential Status: Precedential
Modified Date: 11/14/2024